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Mechel Gets Covenant Holidays on Loan

Zacks Equity Research

Russian mining company Mechel OAO (MTL) announced that it has reached an agreement with its creditors on covenant holidays, for its $1 billion loan, until the end of 2014. The agreement was inked on behalf of a syndicate of banks, including ING Bank N.V., Societe Generale, UniCredit, Commerzbank, Raiffeissen Bank International, VTB, Caterpillar Financial Services Corporation and ICBC (London).

The company is making notable progress in negotiations with other international creditors on covenant holidays and it expects to reach agreements, on the finalization of the financial covenant holidays, in the coming weeks.

Mechel has a debt-laden balance sheet with total debt of roughly $9.3 billion as of Mar 31, 2013. Mechel released its operational results for third-quarter 2013 recently.  In the quarter, Mechel's coal production was 7,028,000 tons, roughly flat sequentially.

Mechel is a prominent player in the steel industry along with steel giant ArcelorMittal (MT). The company is a leading domestic steel and coal producer with a strong position in key businesses, including production of specialty steel and alloys. It has the largest coal reserve base in Russia and is mainly focused on growth and cost-cutting measures.

Mechel owns and controls essential infrastructure; including ports, rolling stock and power plants; which provide access to the export markets. However, Mechel could be jeopardized because of its high debt and interest burden, and might not be able to keep up with its huge capital spending program.

Mechel currently carries a Zacks Rank #3 (Hold).

Other companies in the steel industry with a favorable Zacks Rank are Companhia Siderurgica Nacional (SID) and United States Steel Corp. (X). While Companhia Siderurgica holds a Zacks Rank #1 (Strong Buy), United States Steel has a Zacks Rank #2 (Buy).

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